Estonia has not had a state budget financed using loan money and one that considerably boosts public debt since the country regained its independence, journalist Anvar Samost said on the "Samost ja Sildam" radio program.
Next year's state budget will boost Estonia's public debt by €6.6 billion, while it remains unclear how and whether national debt will be mitigated at all, Samost said.
"It constitutes an important change compared to recent practice. The budget is financed using a loan, the government has entered a different era from when the republic was restored. /.../ If Estonia has switched to a completely new fiscal policy, it raises two important questions. Does that fiscal policy fit Estonia's needs, can it support and liven up the Estonian economy as per the government's plan and help counterbalance the effects of the coronavirus crisis in the short term. The other question is more long-term: what next – will using loans to finance fiscal deficit become a practice for decades or at least for the time of the current government? Also, what are the exit strategies or is there an exit scenario at all in the conditions of zero interest rates? One might cynically say that we do not need an exit strategy," Samost said.
Host Toomas Sildam noted that former Governor of the Bank of Estonia Ardo Hansson has said that the exit scenario lies in tax hikes and budget cuts.
Samost said that this new fiscal policy leaves every new government faced with certain decisions irrespective of who form the coalition. One option is to just keep borrowing that seems to be preferred by current Conservative People's Party (EKRE) chairman, Minister of Finance Martin Helme.
He added that Estonia's altered fiscal policy should not be seen as extraordinary as cheap money and the Covid pandemic have led the entire world to reevaluate fiscal policy. "We should be looking at entirely different things in the state budget from this year and not just in Estonia, fiscal policy has changed in the whole of Europe and the world. Otherwise we will forever gauge long-term change with short-term metrics," he said.
At the same time, the pandemic seems to have robbed the government of the ability to plan for the long term, Samost found. "It seems to me that the coronavirus crisis has done away with this government's long perspective either in terms of time or attention span. I cannot see far-reaching vision anywhere, with the possible of exception of some rather interesting plans highlighted by the finance minister," he said.
Editor: Marcus Turovski